Greene King Regulatory News (GNK)

GREENE KING plc

Preliminary results for the 52 weeks to 03 May 2015

RECORD REVENUE, STRONG RETURNS, SPIRIT ACQUISITION COMPLETED

*excluding exceptionals as detailed in Note 3 **excludes the performance of pubs sold during F14 and F15.

HIGHLIGHTS

· Record revenue; Retail revenue now reached £1bn.

· Retail like-for-like (LFL) sales** +0.4%; Pub Partners LFL net income +3.5%; Brewing & Brands own-brewed volume (OBV) +4.2%.

· Adjusted earnings per share growth of 9.2%* with strong cash flow, lower leverage and continued dividend growth.

· Return on capital employed (ROCE) further increased to 9.3%.

· Completed successful five-year strategic plan: expanded Retail sites by 19.4%; increased tenanted EBITDA per pub by 33%; and grew ale market share by 120bps.

· Completed acquisition of Spirit Pub Company plc, post year-end, creating UK's leading managed pub company; integration process underway.

· Steady trading in first eight weeks; Retail LFL sales +0.6%, Pub Partners LFL net income +1.2% and Brewing & Brands OBV -3.7%.

Rooney Anand, Greene King chief executive officer, comments:

"Greene King has delivered another record year in a challenging trading environment. We have delivered good underlying growth across all parts of the business with Retail generating revenue of over £1bn for the first time. Underlying earnings growth of over 9% has enabled a dividend increase of 4.8%, reflecting our confidence in the strength of the business and its prospects for future growth.

We have also completed a successful five-year strategic plan, surpassing our goals, as we delivered significant progress, changed the business mix and better positioned the company for the future.

We now enter another exciting new phase in the company's history, with the acquisition of Spirit. We warmly welcome Spirit's employees and its shareholders to Greene King. The acquisition will further strengthen our platform to deliver sustainable, long-term success for the benefit of our customers, our employees and our shareholders."

*Retained business

**Revenue from the sale of drink, food and accommodation

A copy of this release and the accompanying results presentation will be available on our website: www.greeneking.co.uk. We can also be followed on twitter via @greeneking.

For further information:

NOTES FOR EDITORS

· Greene King was founded in 1799 and is headquartered in Bury St. Edmunds, Suffolk. It currently employs c.25,000 people across its main trading businesses; Retail, Pub Partners and Brewing & Brands.

· At the year-end, it operated 1,909 pubs, restaurants and hotels across England, Wales and Scotland, of which 1,060 were retail pubs, restaurants and hotels, and 849 were tenanted, leased and franchised pubs. Its leading retail brands are Hungry Horse, Old English Inns (OEI), Eating Inn and Loch Fyne Seafood & Grill. 94% of the estate was either freehold or long leasehold.

· Greene King also brews quality ale brands from its Bury St. Edmunds and Dunbar breweries, and is the UK's leading cask ale brewer and premium ale brewer. Its industry-leading portfolio includes Greene King IPA, Old Speckled Hen, Abbot Ale and Belhaven Best.

· Spirit was demerged from Punch Taverns in 2011 and is headquartered in Burton-on-Trent, Staffordshire. It currently employs c.17,000 people across its main trading businesses; Managed Pubs and Leased Pubs.

· It operates 1,207 pubs across Great Britain, of which 791 are managed and 416 are leased. Its leading brands are Fayre & Square, Chef & Brewer and Flaming Grill.

CHAIRMAN'S STATEMENT

RESULTS

In the year, total revenue was £1,315.3m, up 3.0%* and another record figure for the company. The operating profit before exceptional items was down 1.7% to £256.2m and profit before tax and exceptional items (PBTE) was down 0.8%, each being affected by lower LFL sales growth and the impact of the disposal of 275 pubs to Hawthorn Leisure. Our adjusted earnings per share were up 1.3% to 61.0p. After making allowance for the disposal of the pubs, the retained business grew PBTE by 6.9% and adjusted earnings per share by 9.2%.

DIVIDEND

Following a year of strong underlying growth for the company, the board has recommended a final dividend of 21.8p per share, up 4.8% on last year. This takes the total dividend for the year to 29.75p per share, up 4.8%, continuing our long track record of dividend growth. The final dividend is expected to be paid on 14 September 2015 to those shareholders on the register at the close of business on 14 August 2015.

ACQUISITIONS

On 23 June, after the year end, we completed the acquisition of Spirit Pub Company, the largest acquisition in the company's history. This added 791 retail sites and 416 tenanted and leased sites to our pub estate. During the year, we added 32 sites to our retail estate at a total cost of £75.9m, leaving us with 1,060 sites at the year end.

DISPOSALS

During the year, we sold 314 non-core sites for a total of £94.1m, including the sale to Hawthorn Leisure. The 39 disposals outside of the Hawthorn Leisure transaction realised a sale value of £18.5m.

BOARD

Sadly, Matthew Fearn, our chief financial officer, had to leave us in September 2014 because of his ill-health. In his place, we appointed Kirk Davis, who was formerly the finance director at JD Wetherspoon plc. We welcomed him onto our board as chief financial officer on 3 November 2014.

In July 2014, Rob Rowley joined our board as a non-executive director. He was formerly at Reuters Group plc, where he held various roles including that of finance director, and will be taking the chairmanship of the audit committee from Ian Durant next year.

PEOPLE

I would like to thank everyone who has worked for Greene King over the course of the year, whether it be those who work in our managed pub business, our tenanted and leased pub business or our beer business. Wherever you are in the company, or in the country, your efforts and your achievements are, as always, highly valued and appreciated.

On the most recent note of all, I would like to welcome all of the Spirit employees. We look forward to working with you, sharing ideas and making the most of our joint opportunity to forge a successful future together.  

Tim BridgeChairman

30 June 2015

\* Throughout this statement, 2013/14 rebased to 52 weeks for comparative purposes 

CHIEF EXECUTIVE'S REVIEW

PERFORMANCE SUMMARY

It has been another record year for Greene King with Retail revenue exceeding £1bn for the first time and underlying growth in Pub Partners and Brewing & Brands. We have made good financial and strategic progress and completed a successful five-year strategic plan, culminating in the disposal of over 300 non-core sites in the year and, after the year-end, the acquisition of Spirit Pub Company.

We grew total revenue by 3.0%*, while the retained business, excluding non-core pub disposals, achieved 5.0% growth. Operating profit was 1.7% lower than last year although it was up 3.8% on a retained business basis. The operating margin on a retained business basis fell 20bps to 19.4%, following a significant recovery in the second half.

Adjusted earnings per share were up 1.3% and up 9.2% on a retained business basis. As a result of this continued strong underlying growth, the board has recommended an increase of 4.8% in the dividend per share.

Although underlying retail growth was lower than anticipated at the start of the year, we increased our ROCE to 9.3%, ahead of WACC.

We also made significant progress in key operational metrics, including a 12.3%pt increase in our Retail Net Promoter Scores (NPS) and a 13.4% reduction in Retail team turnover.

\* Throughout this review, 2013/14 rebased to 52 weeks for comparative purposes

MARKET OVERVIEW

While economic indicators generally continued to improve throughout the year, the underlying trends within the sector slowed down as customers diverted discretionary spending towards 'bigger ticket items'. However, we are confident that our continued investment in the business will feed through into stronger underlying growth going forward, supported by ongoing improvements in consumer confidence and disposable income.

With 62%* of UK leisure spending, the eating and drinking out markets dominate the UK leisure market. Within the eating out market, 27% of spend comes from pubs and bars with spend in branded pubs and bars forecasted to be 14% in 2015, up from 11% in 2010. We believe pubs and bars, and particularly branded pubs and bars, will continue to play a significant role within the UK leisure market.

Now that the Small Business, Enterprise and Employment Bill has become law, we will continue to work closely with the government to make sure that important secondary legislation is balanced, does not add unnecessary 'red tape' and encourages continued investment in the tenanted and leased sector.

Our Scottish business suffered in the year from the introduction of a lower drink-driving limit just before Christmas. We have mitigated the impact as much as we can through a number of initiatives. However, the lower limit has changed consumer behaviour towards drinking out in Scotland and we expect to see continued LFL sales weakness, at least in the first full year following its introduction.

*Greene King Leisure Spend Tracker, April 2015

STRATEGY UPDATE

Our five-year strategic plan to improve growth and returns to our shareholders has been successful, helping to drive significant change in the business and better positioning Greene King for sustainable long-term growth. During the last five years, we have: -

1. Expanded our Retail estate by 19.4% and improved average EBITDA per pub by 24%. Since 2010, we have added 172 sites to our retail estate, including 32 sites this year, ending the year on 1,060 pubs, restaurants and hotels. The acquisitions of Cloverleaf, RealPubs and Capital Pubs accelerated our progress in Retail and, overall, average EBITDA per pub improved 24% over the five-years. The return on the cash we invested during the period in new sites was 15.1%, ahead of WACC, and generating shareholder value.

2. Reduced our Pub Partners estate by 46% and improved average EBITDA per pub by 33%. Over the five years, we sold or transferred 735 tenanted and leased sites including 310 this year, taking us significantly ahead of our initial target of 1,200 sites. Since 2010, average EBITDA per pub has risen by 33% to £69.9k.

3. Continued our cask ale leadership position through consistent and industry-leading brand investment. Since 2010, OBV grew 19.7% against an ale market that declined 12.6%. This outperformance was driven by investment and innovation in our industry-leading brand portfolio. Over the five years, we increased our volume share of the UK ale market by 1.2%pts to 10.0%*.

*BBPA, Company

Having successfully delivered on our five-year plan, our immediate focus looking forward is to manage the twin challenges of delivering sustainable performance improvements in Greene King Retail, while successfully integrating Spirit Pub Company to create a clear industry leader.

We have worked hard this year to drive improvements in value, service and quality across Retail, but we are clear that more needs to be done if we are to deliver positively memorable experiences to more savvy and connected customers, in an increasingly competitive market place.

Linked to the core business challenge is the opportunity that the acquisition of Spirit brings. We completed the acquisition on 23 June, following the CMA's formal acceptance of our undertaking to sell 16 pubs, thereby creating the UK's leading managed pub company. With a combined estate of 3,100 pubs, restaurants and hotels, including over 1,000 in London and the south east, we are well positioned to deliver long-term growth.

We expect to generate at least £30m of cost synergies and we anticipate there being further opportunities for value creation. The greater the benefits we realise, the more we will seek to invest in key areas of the combined business such as people, IT and marketing, thereby helping to further strengthen the core retail business.

GREENE KING RETAIL

Further strategic and operational progress helped to deliver another year of growth in Greene King Retail. Total Retail revenue grew by 5.9%, outperforming the market*, which grew by 4.9% over a comparable period. LFL sales growth was 0.4%. LFL sales were affected by a disappointing World Cup in the first half, tougher comparatives in the second half and the impact of the new drink driving legislation in Scotland from December.

*Coffer Peach Business Tracker

Room sales achieved the best LFL sales growth while LFL sales in drink and food performed broadly similarly. Our best performing brands and formats were Metropolitan, our premium London estate, Farmhouse Inns, our growing carvery brand, core Local pubs and OEI.

We exceeded £1bn of total Retail revenue for the first time and this was up 5.9%, or £55.9m, on the previous year. Both Retail divisions, Local Pubs and Destination Pubs, enjoyed growth in the year and the average weekly sales per pub across Retail grew 2.3% to £18,100. Operating profit was up 3.6% to £190.8m while the operating margin was down 40bps, having been down 80bps in the first half. The margin decline was due to the dilutive effect of lower sales growth and increased labour investment, partly offset by cost savings and a more benign cost environment.

Our ongoing progress in Retail is driven by a number of key factors, all predicated on putting customers at the heart of our business, offering them experiences to remember and ensuring their time and money are well spent.

1. Managing constant change in customer perceptions of value, service and quality

In terms of value, we re-launched and expanded our known value item (KVI) strategy across Hungry Horse, Meet & Eat and Flame Grill offering customers enhanced value at 80% more sites than the previous year. In OEI, both leisure and corporate customers were able to take advantage of our great-value breaks, while in Farmhouse Inns we introduced a 'Carvery Baps' lunch offer for £3.95 and a new breakfast menu with 'generosity' at its core.

On service, initiatives such as enhanced menu training programmes and menu simplification helped to improve our average NPS scores by 12.3%. In Farmhouse Inns, we reconfigured the carvery layout to reduce queue times by over 60%, while in Hungry Horse we introduced pagers to proactively manage peak trading customer requirements.

On quality, we expanded the fresh supply chain in our Premium Locals format, which was subsequently recognised with the award of 'best pub menu' by Restaurant Magazine, while we were proud to see Flame Grill announced as the winner of the National Fish and Chip Awards in 2015.

2. Staying close to our customers

We have identified a number of ongoing and emerging consumer trends including all-day eating out and inter-generational eating out occasions.

Day-time Retail sales grew 8% following an expansion of the breakfast offer in Hungry Horse, the introduction of 'Afternoon Tea' in Farmhouse Inns, new lighter snacks such as chocolate-coated popcorn and a salt-beef sandwich, and a new weekend brunch offer in Loch Fyne Seafood & Grill, which recognises the brand's Scottish heritage by including meals such as 'the full Scottish', and has led to a 76% increase in weekly sales from 7am to 11am.

We continue to promote family dining in our sites, with the roll-out of our 'Golden Years' offers to further brands across the estate and the introduction of sharing tables and zones designed to enhance sharing occasions in selected new sites. We also introduced a new ice cream offer for families in Farmhouse Inns to complement our successful 'Cakeaway' offer.

3. Expanding our digital platform

For the increasingly connected consumer, we further extended our digital capability, getting closer to our customers by increasing the channels through which we engage with them. Digital initiatives included the 'Golden Ticket' data capture project in Hungry Horse, with 115,000 customers signing up through a monthly prize draw to win £100 golden tickets, and the development of our OEI accommodation website to engage more customers on the move. We also introduced an App-based platform to capture live feedback from field-based employees. Overall, traffic to our websites grew by 20%, the number of loyalty card holders grew by 17% and the number of Facebook followers grew by 64%.

4. Growing our branded retail presence in the eating and drinking out markets

All our pubs are branded, utilising at least one of the pub name, a format or retail brand name, or Greene King. We are focused on growing our retail branding and at the year-end we had 763 sites with a retail brand or format, against 710 12 months earlier. Our leading brands and formats by number of sites are Hungry Horse, with 241 sites at the year-end, Meet & Eat (182 sites) and OEI (115 sites). The brands receiving the most expansion investment are Hungry Horse and Farmhouse Inns.

5. Employing and developing the best-trained and most motivated people in the sector

Our people are fundamental to the success of our business and we continued to grow our own talent with the launch of initiatives such as a bespoke apprenticeship scheme in Loch Fyne Seafood & Grill and the introduction of a coffee diploma for all team members in Hungry Horse. The impact of our people initiatives is evident in a 13.4% reduction in team turnover across Retail and improvements across our annual employee engagement survey. Now that we have completed the acquisition of Spirit, we employ over 40,000 people, half of whom are under 25. We take the responsibility of employing and developing so many young people seriously and will look to further increase investment in our people going forward.

6. Continuing industry-leading asset investment

We lead the industry in terms of investing in our existing estate and additions to our estate. Our investment in repairing, maintaining and improving the quality of our existing estate rose 5.5% to £79.3m, while we opened 26 sites and transferred in six sites from Pub Partners in the year helping to take the estate to 1,060 sites at the year-end. We spent £75.9m on acquiring and developing these sites. Our expansion programme slowed in the year as resources were diverted to important M&A activity, while, following the acquisition of Spirit's 1,207 sites, we expect to open around 15 additional high quality new sites in the 2016 financial year. We also expect to sell a similar number of non-core Retail sites, on top of the agreed CMA disposals.

 PUB PARTNERS

Pub Partners' strategy is to be the preferred partner to the best operators, sharing sustainable profit growth, enabled by industry-leading business support and a high quality estate.

Pub Partners traded ahead of our expectations in the year, delivering LFL net income growth of 3.5% and average EBITDA per pub growth of 15.5%.

Revenue was down 16.9% on last year following the sale of 275 non-core pubs to Hawthorn Leisure in May 2014, but level with last year on a retained basis. The average size of the estate fell 27.4% and average revenue per pub increased 14.3%. EBITDA was £61.6m, down 16.2%, but up 3.9% on a retained basis. The acceleration of our disposal strategy also impacted operating profit although the margin and ROCE improved versus last year, reflecting the higher quality of the remaining Pub Partners estate and the strong trading performance.

In order to be the preferred partner to the best operators, we need the best pubs. In total, we sold 310 pubs in the year and we transferred six sites to Retail where we considered we would generate sufficient incremental profit to justify the transfer. We also continued to invest in our retained estate, spending £18.9m in total over the year.

Supporting our partner ambitions, we continue to develop the strength of our internal team and the quality and reach of our recruitment programme to attract and retain the best operators. Over 30% of attendees to our quarterly open days became licensees with us and we have leveraged the digital expertise in other parts of the Greene King business to successfully engage with potential applicants through targeted social media campaigns. We have increased investment in our licensed training programmes, including hosting 16 regional social media training events and, within our internal team, over two thirds of our business development managers have now attended diploma or masters courses at Birmingham City University. We were proud to see a member of the Pub Partners team crowned National BDM of the Year by the ALMR, the second successive year that we have achieved this recognition.

We provide a range of agreements to potential licensee partners, including short-term tenancies, longer leases, Local Hero, our franchise-style agreement with a retail concept built around local provenance, and Meet & Eat, a fully accredited turn-key franchise agreement. We increased the number of franchise and franchise-style agreements by 26% to 58.

We further developed our online communications platform and launched a bi-monthly 'Innsight' magazine, which is written in partnership with licensees for licensees and, more recently, we launched the 'Flying Start Project' designed to enhance licensee experience in the build up to, and during, their first 100 days as our business partners.

All of these initiatives led to a further increase in average licensee tenure, which, at the end of the year, stood at five years and seven months. We also saw continued low levels of licensee debt and the number of temporary agreements remained at just 12 at the year-end.

Looking ahead, the acquisition of Spirit will further improve the quality of our Pub Partners estate, as we add 416 pubs at an average EBITDA per pub of £77k.

BREWING & BRANDS

Brewing & Brands' strategy is to grow market share through an appealing portfolio of core brands, complemented by an innovative range of craft and seasonal ales. This growth is enhanced by sector-leading investment in sales and marketing and, by simultaneously running an efficient cost-base, maximising cash generation for the group.

Significant progress was made in the year. OBV was up 4.2% in a UK ale market down 1.2% in the 12 months to April 2015*, with our share rising 40bps to 10.0%*. We remain the UK's leading cask ale brewer.

Revenue grew by 3.9% to £192.7m, while operating profit was 0.1% lower at £29.8m, reflecting the sale of 275 leased and tenanted pubs to Hawthorn Leisure at the beginning of the year. Excluding the impact of disposals, operating profit was up 4.4% to £29.3m.

The 'Hen' brand family had another successful year with volume growth of over 16%, outperforming the UK premium ale market which grew 6.5%*. Old Speckled Hen remains the number one premium ale brand in Great Britain** and has seen its volume almost quadruple since we acquired it in 1999.

Export enjoyed a record year driven by strong sales in Russia, supplemented by the US and Europe. Volumes in the take home channel were also up significantly and Greene King is now the leading British-owned brewer in multiple grocers***.

Key innovation in the year comprised the Greene King IPA brand relaunch with an accompanying quality assurance programme, designed to further engage with our trade customers and to enhance point-of-sale quality. We continued our focus on new product development and during the year we launched East Coast IPA, an American influenced keg beer, and the limited edition 'Old Nutty Hen'.

Other exciting developments included winning the exclusive rights to the Goose Island beer range in England and Wales, including the award-winning 312 Urban Wheat brand, and Greene King IPA winning a gold award at the 2015 Monde awards.

*BBPA May 2014 to April 2015

**CGA Brand Index MAT to 21/02/14, Nielson ScanTrack MAT to 25/04/15

***Nielson ScanTrack MAT to 25/04/15

FINANCIAL REVIEW

RESULTS

Total revenue grew to £1,315.3m, an increase of 3.0%. The biggest driver of growth continues to be our Retail business, where revenue grew by 5.9% and average revenue per site rose 2.4%. Retail now accounts for 76% of group revenue. Total revenue in Pub Partners was down 16.9%, due primarily to the impact of pub disposals, although average revenue per pub increased 14.3%. Brewing & Brands grew revenue by 3.9%. On a retained business basis, stripping out the impact of disposals, total revenue was up 5.0% to £1,313.0m.

Operating profit before exceptionals was £256.2m, down 1.7% on last year, with the operating margin down 90bps to 19.5%. On a retained business basis, operating profit rose 3.8% to £254.4m, with the operating margin down 20bps to 19.4%. The reduction in the retained business operating margin was due to lower retail revenue growth and our additional investment in labour. Net interest costs, before exceptional items of £87.7m, were 3.4% lower than last year, due to strong cash flow management and the impact of disposal proceeds. PBTE was £168.5m, a decrease of 0.8%. Adjusted earnings per share of 61.0p were up 1.3%, benefiting from the reduction in the effective tax rate. Statutory profit before tax was £118.2m, up 12.4% on a 53 week basis, as a result of the impact of exceptional items, summarised below.

TAX

The effective rate of corporation tax (before exceptional items) was 21% compared to 23% in the previous year, resulting in a charge to operating profits (before exceptional items) of £35.3m. This is in line with the standard UK corporation tax rate.

The group's business strategy generates revenue, profits and employment, all of which deliver substantial tax revenues for the UK Government in the form of duties, VAT, income tax and corporation tax. In the year, total tax revenues paid and collected by the group were £405m (2014: £400m). The group's tax policy, which has been approved by the board, aligns with this strategy and ensures that the group fulfils its UK tax responsibilities, while structuring its operations in a tax efficient manner. There are a number of open tax positions in relation to historical transactions and an estimate of the expected total payment relating to these transactions is included within the tax creditor of £50.8m (2014: £46.5m).

PENSIONS

As at the year end, the group maintained two defined contribution schemes, which are open to all new employees. The group's two defined benefit schemes are both closed to new entrants and to future accrual.

At the year end, there was an IAS 19 pension deficit of £59.2m, which compares to £52.2m at the previous balance sheet date. The movement is primarily due to an increase in value of the schemes' liabilities as a consequence of the reduction in the discount rate applied.

Total cash contributions in the period under the schemes' deficit recovery plans were £6.9m.

EXCEPTIONAL ITEMS

We recorded a net exceptional charge of £43.9m, consisting of a £43.9m charge to operating profit before tax, a £6.4m charge to finance costs and a net exceptional tax credit of £6.4m. Full details are set out in note three and the principal items are as follows: -

1. An impairment charge of £27.4m (2014: £22.0m) was made against the carrying value of a small number of our pubs where specific market conditions impacted trading.

2. During the year, the group incurred £15.8m in exceptional advisory fees in relation to the acquisition of Spirit Pub Company and open tax positions. In addition, we incurred £1.5m of exceptional employee costs, which included restructuring costs and costs associated with changes to key management.

3. The exceptional tax credit of £6.4m includes a £7.0m tax credit on exceptional items, a deferred tax credit of £2.3m, in respect of the licensed estate, a £9.5m income tax charge in respect of prior periods and an £6.6m deferred tax credit in respect of prior periods.

CASHFLOW

Operating cash flows continue to be strong. We generated free cashflow (FCF) of £55.7m, which was significantly ahead of our scheduled debt repayments of £31.1m. EBITDA was £319.0m, down 1.4%, but from 13.0% fewer pubs.

During the year, we disposed of 314 sites as part of our strategy to improve the quality of our estate, with the cash proceeds totalling £94.1m. We also made good progress with our strategic Retail expansion plan, adding 26 new pubs to our Retail estate, investing £73.4m.

CAPITAL EXPENDITURE

We invested in maintaining and developing our core estate, in addition to growing the size of our Retail estate. Total expenditure during the period was £160.5m.

Capital expenditure on the core estate, including maintenance capital, was £84.6m, an increase of £2.3m. In addition, we invested £75.9m on our retail expansion, with £20.6m invested in acquiring single sites and £55.3m on developing those assets.

NET DEBT AND TREASURY

Net debt at the year end was £1,368.7m, a reduction of £66.9m from the previous year end, with the key movements being positive FCF of £55.7m, disposal proceeds of £94.1m and the continued investment in growing our Retail estate, through new sites, of £75.9m.

Our high quality pub estate supports £1,180.7m of securitised bonds with amortisation of £31.1m and a weighted average maturity of 12 years.

Our credit metrics remain strong with interest rate hedges in place for 96% of the variable rate debt and a blended average cost of debt of 6.1%. Fixed charge cover has improved slightly to 2.9x, while interest cover remained at 3.0x. Group net debt to EBITDA reduced to 4.3x. Our securitised vehicle had a FCF debt service cover ratio of 1.5x at the year end, giving 24% headroom.

Following the recent acquisition of Spirit Pub Company, the pro-forma net debt of the group is £2.02bn* with net debt to EBITDA at 4.2x**.

*Pro-forma net debt - the sum of net debt as reported by Greene King at 3 May 2015 of £1,368.7m and the nominal value of net debt reported by Spirit at 7 March 2015 of £649.4m

**Pro-forma EBITDA - the sum of EBITDA reported by Greene King for the 52 weeks to 3 May 2015 of £319.0m and calculated for Spirit for the 53 weeks to 7 March 2015 of £163.0m

DIVIDEND

The board has recommended a final dividend of 21.8p per share, up 4.8%. This will be paid on 14 September 2015 to all shareholders on the register at the close of business on 14 August 2015.

The proposed final dividend brings the total dividend for the year to 29.75p per share, up 4.8%. This is in line with the board's policy of maintaining a dividend cover of around two times underlying earnings, while continuing to invest for future growth, and maintains our long-term track record of annual dividend growth.

CURRENT TRADING & OUTLOOK

We have seen a steady start to the new financial year. In the first eight weeks, Retail LFL sales were up 0.6%, LFL net income in Pub Partners was up 1.2% and OBV in Brewing & Brands was down 3.7%, against tough comparatives and a year-on-year delay in the timing of export sales. The new drink-driving regulations in Scotland reduced Retail LFLs by 50bps during the period. For the same eight week period, managed LFL sales at Spirit were up 0.8%.

While consumer spending on eating and drinking out is improving, spending on big ticket items has been the main beneficiary of the return to real income growth so far. In this environment, we will continue to focus on improving customer experiences in order to drive sustainable growth across the core business.

We are looking forward to integrating Spirit and to building the leading pub hospitality company in the UK, combining the best people, brands and processes from both businesses. We have only recently completed the acquisition, but our early analysis of the business is encouraging and we see a number of exciting opportunities for the combined business.

We are confident of delivering another year of financial and strategic progress for our shareholders.

Rooney Anand

Chief executive officer

30 June 2015

UNDERLYING RETAINED BUSINESS

1 Adjusted for FY 15 and FY 14 revenue and operating profit of tenanted pubs disposed of in the 52 week period ended 3 May 2015 and the 53 week period ended 4 May 2014.

2 Estimated reduction in finance costs assuming disposal proceeds were received at the start of FY 14; calculated by applying marginal bank facility interest rates to net proceeds received.

3 Tax at the group's pre-exceptional tax rates of 21% and 23% for FY 15 and FY 14 respectively.

4 Profit attributable to equity holders divided by the weighted average number of shares of 218.3m and 217.2m for FY 15 and FY 14 respectively.  

Group income statement

for the fifty-two weeks ended 3 May 2015

* Adjusted earnings per share excludes the effect of exceptional items.

Group statement of comprehensive income

for the fifty-two weeks ended 3 May 2015

Group balance sheet

as at 3 May 2015

Group cashflow statement

for the fifty-two weeks ended 3 May 2015

*EBITDA represents earnings before interest, tax, depreciation, amortisation and exceptional items

GROUP Statement of change in equity

for the fifty-two weeks ended 3 May 2015

Notes to the accounts

for the fifty-two weeks ended 3 May 2015

1 Basis of preparation

The financial information for the fifty-two weeks ended 3 May 2015 has been audited and has been prepared in accordance with International Financial Reporting Standards (IFRS) as required by European Union law.

The accounting policies adopted are consistent with those applied in the preparation of the group's annual report for the year ended 4 May 2014, except for the adoption of new standards and interpretations applicable as of 5 May 2014, which have been assessed as having no financial impact.

Additional disclosure, as required by IAS 36 Recoverable Amount Disclosures for Non-Financial Assets (amendment), is included in the 2015 financial statements relating to the calculation of fair values used to assess the impairment of property, plant and equipment.

2 Segment information

The group has determined the following three reportable segments that are largely organised and managed separately according to the nature of products and services provided, distribution channels and profile of customers:

Retail: Managed pubs and restaurants

Pub Partners: Tenanted and leased pubs

Brewing & Brands: Brewing, marketing and selling beer

Transfer prices between operating segments are set on an arm's length basis.

Notes to the accounts

for the fifty-two weeks ended 3 May 2015

* Unallocated assets/liabilities include cash, borrowings, pensions, net deferred tax, net current tax, and derivatives

** EBITDA represents earnings before interest, tax, depreciation, amortisation and exceptionals.

Notes to the accounts

for the fifty-two weeks ended 3 May 2015

3 Exceptional items

Exceptional operating costs

During the period, the group recognised £15.8m (2014: nil) of exceptional legal and professional fees that related to the acquisition of Spirit Pub Company plc, other potential acquisitions and defending uncertain tax positions. These amounts include £10.6m of fees that were contingent on the completion of the acquisition of Spirit Pub Company plc which have been recognised in accordance with IAS 32 and will be settled in the financial year ending 1 May 2016.

During the period the group recognised an impairment loss of £27.4m (2014: £22.0m) in respect of its licensed estate. The impairment has been recognised in respect of pubs where the higher of value-in-use and fair value less costs to sell has fallen below the net book value.

The group incurred £1.5m (2014: nil) of exceptional employee costs, which included restructuring costs and costs associated with changes to key management. A share based payment credit of £0.6m results from the reversal of charges recognised in previous years following a reassessment of expected scheme performance.

Notes to the accounts

for the fifty-two weeks ended 3 May 2015

3 Exceptional items (CONTINUED)

Exceptional finance costs

The £2.4m fair value loss (2014: gain £1.1m) is the mark-to-market movement on the ineffective element of cashflow hedges resulting from changes in the LIBOR yield curve.

Exceptional tax

The Finance Act 2013 reduced the rate of corporate tax from 21% to 20% from 1 April 2015. The effect of the reduced rate was included in the accounts for the previous period.

The adjustment in respect of prior periods' income tax arises from finalising the tax returns for earlier periods including the reversal of tax relief previously taken on intra-group transactions.

The adjustment in respect of prior periods' deferred tax arises from finalising the tax returns and also deferred tax on revaluation and rolled over gains on the licensed estate. 

4 Taxation

The income tax liability of £50.8m (2014: £46.5m) includes an assessment of the expected payments on uncertain tax positions which have yet to be agreed or are in dispute with HMRC.

Notes to the accounts

for the fifty-two weeks ended 3 May 2015

5 Earnings per share

Basic earnings per share has been calculated by dividing the profit attributable to equity holders of £89.3m (2014: £96.1m) by the weighted average number of shares in issue during the period (excluding own shares held) of 218.3m (2014: 217.2m).

Diluted earnings per share has been calculated on a similar basis taking account of 1.6m (2014: 1.1m) dilutive potential shares under option, giving a weighted average number of ordinary shares adjusted for the effect of dilution of 219.9m (2014: 218.3m). There were no (2014: nil) anti-dilutive share options excluded from the diluted earnings per share calculations. The performance conditions for share options granted over 1.5m (2014: 2.6m) shares have not been met in the current financial period and therefore the dilutive effect of the number of shares which would have been issued at the period end have not been included in the diluted earnings per share calculation.

Adjusted earnings per share excludes the effect of exceptional items and is presented to show the underlying performance of the group on both a basic and diluted basis.

6 Dividends paid and proposed

Dividends on own shares have been waived.

Notes to the accounts

for the fifty-two weeks ended 3 May 2015

7 cash and cash equivalents

Liquidity facility

During the prior period the standby liquidity facility provider had its short-term credit rating downgraded below the minimum prescribed in the facility agreement and as such the group exercised its entitlement to draw the full amount of the facility and hold it in a designated bank account. The amount drawn at year end is £157.5m (2014: £157.5m). The amounts drawn down can only be used for the purpose of meeting the securitisation's debt service obligations should there ever be insufficient funds available from operations to meet such payments. As such these amounts are considered to be restricted cash.

Securitised cash

Included within cash at bank and in hand and short term deposits is £34.3m (2014: £16.1m) held within securitised bank accounts which are only available for use by the securitisation entities within the group. The securitisation entities comprise Greene King Retailing Parent and its subsidiaries.

8 Borrowings

Notes to the accounts

for the fifty-two weeks ended 3 May 2015

9 Working capital and non-cash movements

10 Analysis OF and movements in net debt

*included in cash and cash equivalents on the balance sheet

Notes to the accounts

for the fifty-two weeks ended 3 May 2015

11 Dividend payments

Subject to the approval of shareholders at the annual general meeting, the final dividend will be paid on 14 September 2015 to shareholders on the register at the close of business on 14 August 2015.

12 post balance sheet events

On 23 June 2015 the group completed the acquisition of Spirit Pub Company creating the UK's leading managed pub company. The group acquired 100% share capital of Spirit Pub Company plc for estimated consideration of £763.1m, entirely made up of Greene King plc share capital.

13 Report and accounts

The above financial information is derived from the statutory accounts for the period ended 3 May 2015 on which the auditors have issued an unqualified opinion. The information does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006.

The accounts for the period ended 4 May 2014 have been filed with the Registrar of Companies and the auditors of the company made a report thereon under Chapter 3 of Part 16 of the Companies Act 2006. That report was an unqualified report and did not contain a statement under Section 498 (2) or Section 498(3) of the Act.

The 2015 Report & Accounts will be posted to shareholders on 6 August 2015 and copies will be available from that date from the Company Secretary at the registered office of the company, Westgate Brewery, Bury St. Edmunds, Suffolk IP33 1QT.

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